The pair explain that what's happening right now in the muni market makes a certain amount of sense. It's a bit like last year, when the market repriced sovereign risk to act like a credit product, rather than an interest rate product it was previously valued at. That meant yields were higher and the cost to insure the debt rose too as a result of investors realizing that, yes, a sovereign could actually default.

Now that's happening with muni bonds, but it has gotten completely out of control and there's multiple reasons why.

Median state debts are around 7.3% of gross state product; with local governments tacked on it is a bit above 18%. This is not comparable to sovereigns, but it shows it's not too big.

The average maturity date of muni debt is 16.2 years, giving some time and delaying rollover risk for the broader market.

Muni interest costs are actually costing states less, not more, compared to history.

Small municipalities may face imminent cash flow problems, but this isn't likely to be a broad problem.

Public pensions -- which may eventually be a serious issue -- are not yet ready to cause a significant threat.

So, while there may be some imminent problems to smaller municipalities, there is no reason to start thinking mass default. Rather, this is just an appropriate adjustment to a market's risk dynamics.